December 19, 2010

AEO2011 Early Release Overview

by the Energy Information Administration

- This release is an abridged version of the Annual Energy Outlook that highlights changes in the AEO Reference case projections for key energy topics. The Early Release includes data tables for the Reference case only. The full AEO2011 will be released March 2011.

EIA (2010). "AEO2011 Early Release Overview." The Energy Information Administration, Dec 2010.

Adapting to Climate Change - SOER 2010 Thematic Assessment

by the European Environmental Agency

- Climate change is happening and will continue to have far-reaching consequences for human and natural systems. Impacts and vulnerabilities differ considerably across regions, territories and economic sectors in Europe. Strategies to adapt to climate change are necessary to manage impacts even if global temperature stays below a 2 °C increase above the pre-industrial level. The EU adaptation framework aims at developing a comprehensive strategy by 2013, to be supported by a clearinghouse for sharing and maintaining information on climate change impacts, vulnerability and adaptation.

EEA (2010). "Adapting to Climate Change - SOER 2010 Thematic Assessment." European Environmental Agency, Nov 2010. [18.7 M]

Mitigating Climate Change - SOER 2010 Thematic Assessment

by the European Environmental Agency

- The EU emitted close to 5 billion tonnes (Gt) of CO2-equivalent emissions in 2008. It contributes today around 12 % of annual global anthropogenic direct greenhouse gas emissions. The EU is making good progress towards achieving its emission reduction targets. A rapid, sustained and effective transition to a low carbon economy is necessary to mitigate climate change and to meet global greenhouse gas emission targets.

EEA (2010). "Mitigating Climate Change - SOER 2010 Thematic Assessment." European Environmental Agency, Nov 2010.

Some Basic Economics of Carbon Taxes

by Harry Clarke

- This paper asks three questions. First, how do carbon taxes drive economic and environmental outcomes? Second, what is the appropriate economic base on which carbon taxes should be levied? Finally, how well does a carbon tax deliver economic environmental outcomes compared to a comparable emissions trading scheme.

Clarke, H. (2010). "Some Basic Economics of Carbon Taxes." CCEP working paper 4.10, Oct 2010.

Beyond Copenhagen: Reconciling International Fairness, Economic Development, and Climate Protection

by Jing Cao

- Looking beyond Copenhagen, this paper proposes a new architecture for international climate policy going forward. It highlights a top-down, burden-sharing rule that is designed to produce a fair distribution of burdens across countries while also (a) giving priority to economic development and concerns about wealth inequality and (b) achieving emission reductions consistent with holding the expected increase in global average temperature to 2 degrees Celsius.

Cao, J. (2010). "Beyond Copenhagen: Reconciling International Fairness, Economic Development, and Climate Protection." Discussion Paper 2010-44, Harvard Project on International Climate Agreements, Oct 2010.

New Rules, New Politics, Same Actors: Explaining Policy Change in the EU ETS

by Andrés J. Drew

- The allocation rules for phase one EU ETS emissions permits demonstrates that energy generators were lobbying winners because they successfully blocked differential treatment (rules) from energy intensive industries, who cannot pass-on real or nominal costs of permits to consumers. As a result, these generators benefited from windfall profits. In phase three, the reverse is true; energy intensive industries successfully established differential rules. Literature applying public choice theory to this case study predicted free permit allocations but not windfall profits for generators nor the change in allocation rules in phase three. This paper presents the argument that a shift in Wilson’s Typology from client to interest group politics best explains these changes and provides a good framework for other jurisdictions considering emissions trading reforms.

Drew, A.J. (2010). "New Rules, New Politics, Same Actors: Explaining Policy Change in the EU ETS." Grantham Research Institute on Climate Change and the Environment Working Paper No. 29, Oct 2010.

The Economic Geography of European Carbon Market Trading

by Eric Knight

- The European Union Emissions Trading Scheme (EU ETS) is the world’s first regional carbon trading market. This article is a quantitative attempt to examine the temporal and spatial geography of European carbon trading. We show that carbon markets are especially sensitive to two factors: staging across time (Phase I versus II of the EU ETS) and across space (energy market structures in Europe). Carbon markets serve as a vehicle to better understand the economic geography of financial markets. Building on the theoretical vocabulary of the geography of finance, the article suggests that certain national factors (market structure) and institutional factors (regulatory phases) better explain how carbon markets operate than company level differences. These findings indicate that geographers have a key role to play in highlighting the local ramifications of carbon markets if and when the world moves towards its ambition for a global carbon market.

Knight, E. (2010). "The Economic Geography of European Carbon Market Trading." CCEP working paper 5.10, Oct 2010.

Climate Change and Game Theory: a Mathematical Survey

by Peter John Wood

- This paper examines the problem of achieving global cooperation to reduce greenhouse gas emissions. Contributions to this problem are reviewed from noncooperative game theory, cooperative game theory, and implementation theory. We examine the solutions to games where players have a continuous choice about how much to pollute, and games where players make decisions about treaty participation. The implications of linking cooperation on climate change with cooperation on other issues, such as trade, is also examined. Cooperative and non-cooperative approaches to coalition formation are investigated in order to examine the behaviour of coalitions cooperating on climate change. One way to achieve cooperation is to design a game, known as a mechanism, whose equilibrium corresponds to an optimal outcome. This paper examines some mechanisms that are based on conditional commitments, and their policy implications. These mechanisms could make cooperation on climate change mitigation more likely.

Wood, P.J. (2010). "Climate Change and Game Theory: a Mathematical Survey." CCEP working paper 2.10, Oct 2010.

China’s Low Carbon Transformation: Drivers, Challenges, and Paths

by Jiahua Pan

- The author demonstrates that China’s low carbon transformation is largely driven from domestic considerations. For china the question is not to make the transformation into a low carbon economy, but how to accelerate the process. In the meantime, low carbon transformation in China has to face many serious challenges. A dilemma exists that a higher carbon may actually help raise necessary resources for promoting low carbon solutions. Understanding and international cooperation are essential for China’s low carbon transformation.

Pan, J. (2010). "China’s Low Carbon Transformation: Drivers, Challenges, and Paths." CCEP working paper 6.10, Oct 2010.

Tracking Progress Towards Kyoto and 2020 Targets in Europe

by the European Environmental Agency

- This report presents an overview of the progress achieved so far by the EU, its Member States and other EEA member countries towards their respective targets under the Kyoto Protocol and the EU burden-sharing agreement. The assessment is based on greenhouse gas emission data in Europe for 2008, the first year of the Kyoto Protocol's first commitment period which runs from 2008 to 2012. The recent availability of 2009 emissions estimates for the EU and a limited number of countries broadens, in these cases, the basis of the assessment to two years of the five-year commitment period.

EEA (2010). "Tracking Progress Towards Kyoto and 2020 Targets in Europe." European Environmental Agency Report No 7/2010, Oct 2010.

The Contribution of Natural Gas Vehicles to Sustainable Transport

by Michiel Nijboer

- The transport sector is currently responsible for 23% of energy-related CO2 emissions, and transport associated CO2 emissions will more than double by 2050. This working paper evaluates the potential costs and benefits of using natural gas as a vehicle fuel for road transportation, as well as the policy related to its market development.

Nijboer, M. (2010). "The Contribution of Natural Gas Vehicles to Sustainable Transport." The International Energy Agency, Working Paper, Oct 2010.

International Environmental Agreements: Theory Meets Experimental Evidence

by Nicholas E. Burger and Charles D. Kolstad

- This paper begins with the standard theoretical model of an International Environmantal Agreement and then proceeds to develop parallel laboratory experiments to test the theoretical predictions. One of the key results to emerge from this paper is that the main theoretical result -voluntary agreements tend to fail when they are most beneficial- is contradicted by experimental evidence.

Burger, N.E. and C.D. Kolstad (2010). "International Environmental Agreements: Theory Meets Experimental Evidence." University of California at Santa Barbara, mimeo, Sept 2010.

Environmental Economics and Modeling Marketable Permits

by Luca Taschini

- This paper reviews fundamental concepts in environmental economics and explores theoretical results regarding the choice of the key policy instruments for the control of externalities: taxes, subsidies and marketable permits. The paper explains why today market mechanisms are increasingly being used as a tool for allocating unpriced rights and scarce resources. We survey how significant market imperfections, a pre-existing regulatory environment and concentration in both permit and output markets can impede the proper functioning of a permit system.

Taschini, L. (2010). "Environmental Economics and Modeling Marketable Permits." Grantham Research Institute on Climate Change and the Environment Working Paper No. 25, Sept 2010.

Probabilistic Regional and Seasonal Predictions of Twenty-First Century Temperature and Precipitation

by David Stainforth

- Climate predictions on regional scales are highly sought after by policy and decision makers. Here a new method is presented for extracting model based probabilistic information on regional and seasonal scales, utilising the world’s largest climate ensemble exploring the consequences of model uncertainty. For the first time ensemble filtering is implemented to counter problems of in-sample bias in future analyses. A probabilistic interpretation is presented of the regional scale consequences of targets to halve global GHG emissions by 2050, using a scenario with an estimated 32% probability of exceeding 2°C global warming (relative to pre-industrial levels).

Stainforth, D. (2010). "Probabilistic Regional and Seasonal Predictions of Twenty-First Century Temperature and Precipitation." Grantham Research Institute on Climate Change and the Environment Working Paper No. 23, Aug 2010.

Polluters and Abaters

by Alain-Désiré Nimubona and Bernard Sinclair-Desgagné

- To comply with laws, regulations and social demands, polluting firms increasingly purchase the needed means from specialized suppliers. This paper analyzes this relatively recent phenomenon. We show how environmental regulation, the size of the output market, the elasticity of demand for abatement goods and services, and the fact that in-house and outsourced abatement expenses are substitutes or complements can influence a polluter’s make-or-buy decision.

Nimubona, A-D and B. Sinclair-Desgagné (2010). "Polluters and Abaters." FEEM Note di lavoro No. 2010.146, Jul 2010.

Extrapolation in Games of Coordination and Dominance Solvable Games

by Friederike Mengel and Emanuela Sciubba

- We study extrapolation between games in a laboratory experiment. Participants in our experiment first play either the dominance solvable guessing game or a Coordination version of the guessing game for five rounds. Afterwards they play a 3x3 normal form game for ten rounds with random matching which is either a game solvable through iterated elimination of dominated strategies (IEDS), a pure Coordination game or a Coordination game with pareto ranked equilibria.

Mengel, F. and E. Sciubba (2010). "Extrapolation in Games of Coordination and Dominance Solvable Games." FEEM Note di lavoro No. 2010.148, Jun 2010.

Does Adaptation to Climate Change Provide Food Security? A Micro-Oerspective from Ethiopia

by Salvatore Di Falco, Marcella Veronesi and Mahmud Yesuf

- We examine the driving forces behind farmers’ decisions to adapt to climate change, and the impact of adaptation on farmers’ food production. We investigate whether there are differences in the food production functions of farm households that adapted and those that did not adapt. We estimate a simultaneous equations model with endogenous switching to account for the heterogeneity in the decision to adapt or not, and for unobservable characteristics of farmers and their farm. We compare the expected food production under the actual and counterfactual cases that the farm household adapted or not to climate change.

Di Falco, S., M. Veronesi and M. Yesuf (2010). "Does Adaptation to Climate Change Provide Food Security? A Micro-Oerspective from Ethiopia." Grantham Research Institute on Climate Change and the Environment Working Paper No. 19, May 2010.

On Non-Marginal Cost-Benefit Analysis

by Simon Dietz and Cameron Hepburn

- Conventional cost-benefit analysis incorporates the normally reasonable assumption that the policy or project under examination is marginal in the sense that it will not significantly change relative prices. In particular, it is assumed that the policy or project does not change the underlying growth rate of the economy. However, these assumptions may be inappropriate in some important circumstances, such as large development projects in small economies, or large-scale infrastructure investment programmes. This paper develops the theory on the evaluation of non-marginal policies and projects, with an empirical application to the mitigation of global climate change.

Dietz, S. and C. Hepburn (2010). "On Non-Marginal Cost-Benefit Analysis." Grantham Research Institute on Climate Change and the Environment Working Paper No. 18, Mar 2010.

December 13, 2010

A Trend Analysis of Normalized Insured Damage from Natural Disasters

by Fabian Barthel and Eric Neumayer

- As the world becomes wealthier over time, inflation-adjusted insured damages from natural disasters go up as well. This article analyzes whether there is still a significant upward trend once insured natural disaster loss has been normalized. By scaling up loss from past disasters, normalization adjusts for the fact that a disaster of equal strength will typically cause more damage nowadays than in past years because of wealth accumulation over time. We analyze trends at the global level over the period 1990 to 2008, over the period 1980 to 2008 for Germany and 1973 to 2008 for the United States.

Barthel, F. and E. Neumayer (2010). "A Trend Analysis of Normalized Insured Damage from Natural Disasters." Grantham Research Institute on Climate Change and the Environment Working Paper No. 30, Nov 2010.

Normalizing Economic Loss from Natural Disasters: a Global Analysis

by Eric Neumayer and Fabian Barthel

- In this article, we argue that the conventional methodology for normalizing economic loss is problematic since it normalizes for changes in wealth over time, but fails to normalize for differences in wealth across space at any given point of time. We introduce an alternative methodology that overcomes this problem in theory, but faces many more problems in its empirical application. Applying, therefore, both methods to the most comprehensive existing global dataset of natural disaster loss, in general we find no significant upward trends in normalized disaster damage over the period 1980 to 2009 globally, regionally, for specific disasters or for specific disasters in specific regions.

Neumayer, E. and F. Barthel (2010). "Normalizing Economic Loss from Natural Disasters: a Global Analysis." Grantham Research Institute on Climate Change and the Environment Working Paper No. 31, Nov 2010.

Norway - Sustainable Development: Climate Change and Fisheries Policies

by Paul O'Brien

- Sustainable development is a key theme in policy making in Norway. Although it owes a considerable part of its wealth to the carbon-based economy, Norway gives priority to the objectives embodied in the OECD Green Growth Strategy and sees itself as a pioneer in some areas. The sustainable development strategy, an integral part of the documentation for the 2008 budget, spelt out the key principles that were intended to guide policymaking and a set of quantitative indicators that are intended to give an indication of progress. This Working Paper relates to the 2010 Economic Survey of Norway. (www.oecd.org/eco/surveys/Norway)

Paul O'Brien (2010). "Norway - Sustainable Development: Climate Change and Fisheries Policies." OECD Economics Department Working Papers, No. 805, OECD Publishing, Oct 2010.

Phasing Out Energy Subsidies in Indonesia

by Annabelle Mourougane

- The oil price hike in 2007-08 underlined the vulnerability of Indonesia’s energy subsidy policy to oil price volatility. In addition to entailing significant economic and environmental costs, energy subsidies put pressure on the public budget and benefit mostly rich households. Phasing them out would benefit both the economy and the environment. At the same time, past experience in Indonesia and elsewhere suggests that such a reform is likely to face stiff opposition and will therefore need to be carefully designed and communicated. Compensation in the form of targeted cash transfers will help to shield low-income households from attendant rise in energy prices. This Working Paper relates to the 2010 OECD Economic Review of Indonesia (www.oecd.org/eco/surveys/Indonesia).

Mourougane, A. (2010). "Phasing Out Energy Subsidies in Indonesia." OECD Economics Department Working Papers, No. 808, OECD Publishing, Oct 2010.

Implementing Cost-Effective Policies in the United States to Mitigate Climate Change

by David Carey

- The United States agreed to a global political agreement to reduce GHG emissions that was acknowledged at Copenhagen (COP15) in December 2009 and negotiations are continuing to work towards binding emissions-reduction commitments by all countries. In view of the scale of emission reductions called for, it is vital that the United States adopt a cost-effective and comprehensive climate change policy. The current Administration is endeavouring to put such a policy package in place. Its core elements are comprehensive pricing of GHG emissions and increased support for the development and deployment of GHG-emissions-reducing technologies. The alternative regulatory approach would be more costly and unlikely to deliver the required scale of reductions in emissions.

Carey, D. (2010). "Implementing Cost-Effective Policies in the United States to Mitigate Climate Change." OECD Economics Department Working Papers, No. 807, OECD Publishing, Oct 2010.

Impacts of Climate Change and Sea-Level Rise: A Preliminary Case Study of Mombasa, Kenya

by Abiy S. Kebede, Robert J. Nicholls, Susan Hanson and Mustafa Mokrech

- This GIS-based study provides a first quantitative estimate, both now and through the 21st Century, of the number of people and associated economic assets potentially exposed to coastal flooding due to sea-level rise and storm surges in Mombasa. The methods used here could be applied more widely to other coastal cities in Africa and elsewhere to better understand present and future exposure and worst-case risks due to climate change and rising sea levels.

Kebede, A. S., R. J. Nicholls, S. Hanson, and M. Mokrech (2010). "Impacts of Climate Change and Sea-Level Rise: A Preliminary Case Study of Mombasa, Kenya." Tyndall Working Paper No. 146, Oct 2010.

Low Carbon Electricity Investment: The Limitations of Traditional Approaches and a Radical Alternative

by Tim Laing and Michael Grubb

- This working paper identifies four key difficulties with the current mainstream approach of relying on the impact of a carbon price in the present liberalised electricity market, supplemented with additional incentive mechanisms like renewable obligation certificates and feed-in tariffs. We then summarise alternate mechanisms and propose a new approach, aimed at harnessing the potential interest and capital of electricity consumers, large and small, directly in funding low carbon electricity investments, in the form of longterm ‘Green Power’ contracts that operate in a separate, differentiated contract market.

Laing, T. and M. Grubb (2010). "Low Carbon Electricity Investment: The Limitations of Traditional Approaches and a Radical Alternative." EPRG Working Paper 1032, Sept 2010.

The Effect of CO2 Pricing on Conventional and Non-Conventional Oil Supply and Demand

by Aurélie Méjean and Chris Hope

- What would be the effect of CO2 pricing on global oil supply and demand? This paper introduces a model describing the interaction between conventional and non-conventional oil supply in a Hotelling framework and under CO2 constraints. The model assumes that non-conventional crude oil enters the market when conventional oil supply alone is unable to meet demand, and the social cost of CO2 is included in the calculation of the oil rent at that time. The results reveal the effect of a CO2 tax set at the social cost of CO2 on oil price and demand and the uncertainty associated with the time when conventional oil production might become unable to meet demand.

Méjean, A., and C. Hope (2010). "The Effect of CO2 Pricing on Conventional and Non-Conventional Oil Supply and Demand." EPRG Working Paper 1029, Sept 2010.

Cap-and-Trade Properties under Different Hybrid Scheme Designs

by Georg Grüll and Luca Taschini

- This paper examines the key design mechanisms of existing and proposed cap-and-trade markets. First, it is shown that the hybrid systems under investigation (price floor using a minimum price guarantee, price collar, allowance reserve, options offered by the regulator, and offset relaxation) can be decomposed into a combination of an ordinary cap-and-trade scheme with European- or American-style call and put options. Then, we quantify and discuss the advantages and disadvantages of the proposed hybrid schemes by investigating whether pre-set objectives can be accomplished while maintaining the original environmental targets. Plain vanilla options are proposed as an alternative that reconciles the otherwise conflicting policy objectives.

Grüll, G. and L. Taschini (2010). "Cap-and-Trade Properties under Different Hybrid Scheme Designs." Grantham Research Institute on Climate Change and the Environment Working Paper No. 26, Sept 2010.

Oil Shortages, Climate Change and Collective Action

by David M Newbery

- Concerns over future oil scarcity might not be so worrying but for the high carbon content of substitutes, and the limited capacity of the atmosphere to absorb additional CO2 from burning fuel. The paper argues that the tools of economics are helpful in understanding some of the key issues in pricing fossil fuels, the extent to which pricing can be left to markets, the need for, and design of, international agreements on corrective carbon pricing, and the potential prisoners’ dilemma in reaching such agreements, partly mitigated in the case of oil by current taxes and the likely incidence of carbon taxes on the oil price. The ‘Green Paradox’ in which carbon pricing exacerbates climate change is theoretically possible, but empirically unlikely.

David M Newbery (2010). "Oil Shortages, Climate Change and Collective Action." EPRG Working Paper 1023, Sept 2010.

Aviation Emissions in the Context of Climate Change: a Consumption-Production Approach

by Alice Bows, Sarah Mander, Sally Randles and Kevin Anderson

- This report presents the results of a research project investigating consumption-production systems within the aviation industry. The aim of the study was to understand better the drivers of growth within this sector and thereby highlight opportunities for policymakers to address the pressing issue of growth in emissions from aviation in the context of climate change mitigation. The project engaged with aviation industry representatives in addition to a number of ‘frequent flyer’ consumers.

Bows, A., S. Mander, S. Randles and K. Anderson (2010). "Aviation Emissions in the Context of Climate Change: a Consumption-Production Approach." Tyndall Centre for Climate Change Research, Jun 2010.

European Energy Policy and the Transition to a Low-Carbon Economy

by Jeremy Lawson

- To ensure that the transition to a low-carbon economy is achieved at a low cost, the EU should seriously consider including all transport sectors in the Emissions Trading Scheme when practical and appropriate, and ensure that only sectors rigorously identified as being at genuine risk of carbon leakage should continue to receive free allowances until 2020. The Commission’s third energy market liberalisation package should be strengthened by requiring full ownership unbundling of transmission service operators and ensuring the powers of the proposed Agency for Co-operation of Energy Regulators are broad enough to contribute effectively to a truly single European energy market. This Working Paper relates to the 2010 Economic Survey of the European Union. (www.oecd.org/eco/surveys/EuropeanUnion)

Lawson, J. (2010). "European Energy Policy and the Transition to a Low-Carbon Economy." OECD Economics Department Working Papers, No. 779, OECD Publishing, Jun 2010.

Interfuel Substitution and Energy Use in the UK Manufacturing Sector

by Jevgenijs Steinbuks

- This paper investigates interfuel substitution in the UK manufacturing sector. Econometric models of interfuel substitution are applied to energy inputs aggregated by their energy use, and separately for thermal heating processes, where interfuel substitution is technologically feasible. Compared to aggregate data, estimated own-price fuel demand elasticities for all fuels and cross-price elasticities for fossil fuels are considerably higher for thermal heating processes. Nonetheless, electricity is found to be a poor substitute for other fuels based on both aggregate data and separately for the heating process.

Steinbuks, J. (2010). "Interfuel Substitution and Energy Use in the UK Manufacturing Sector." EPRG Working Paper 1015, May 2010.

Risk Aversion and CO2 Regulatory Uncertainty in Power Generation Investment: Policy and Modeling Implications

by Lin Fan, Benjamin F. Hobbs and Catherine S. Norman

- Our simulation considers producers in a competitive energy market. Risk averse producers face uncertainty about future carbon regulation. Investment decisions are a two-stage equilibrium problem. Initially, investment is made under regulatory uncertainty; then the regulatory state is revealed and producers realize returns. We consider taxes, grandfathered permits and auctioned permits and show that outcomes vary under risk aversion; some anticipated policies yield perverse investment incentives, in that investment in the dirty technology is encouraged. Beliefs about the policy instrument that will be used to price carbon may be as important as certainty that carbon will be priced. More generally, a failure to consider risk aversion may bias policy models of the power sector.

Fan, L., B.F. Hobbs and C.S. Norman (2010). "Risk Aversion and CO2 Regulatory Uncertainty in Power Generation Investment: Policy and Modeling Implications." EPRG Working Paper 1014, May 2010.

Supplying Synthetic Crude Oil from Canadian Oil Sands: A Comparative Study of the Costs and CO2 Emissions of Mining and In-situ Recovery

by Aurélie Méjean and Chris Hope

- High crude oil prices and the eventual decline of conventional oil production raise the issue of alternative fuels such as non-conventional oil. The paper describes a simple probabilistic model of the costs of synthetic crude oil (SCO) produced from Canadian oil sands. This forward-looking analysis quantifies the effects of learning and production constraints on the costs of supplying synthetic crude oil from Canadian bitumen deposits. The results show the uncertainties associated with the future costs of synthetic crude oil. Carbon costs have a large impact of the total costs of synthetic crude oil, in particular in the case of synthetic crude oil from in-situ bitumen, due to the carbon-intensity of the recovery techniques.

Aurélie Méjean and Chris Hope (2010). "Supplying Synthetic Crude Oil from Canadian Oil Sands: A Comparative Study of the Costs and CO2 Emissions of Mining and In-situ Recovery." EPRG Working Paper 1005, Mar 2010.

December 5, 2010

The Impact of Climate on Life Satisfaction

by David Maddison and Katrin Rehdanz

- We analyse the influence of climate on average life satisfaction in 87 countries using data from the World Values Survey. Climate is described in terms of ‘degree-months’ calculated using an optimally-selected base temperature of 65°F (18.3°C). Our results suggest that countries with climates characterised by a large number of degree-months enjoy significantly lower levels of life satisfaction. This finding is robust to a wide variety of model specifications. Using our results to analyse a particular climate change scenario associated with the IPCC A2 emissions scenario points to major losses for African countries, but modest gains for Northern Europe.

Maddison, D. and K. Rehdanz (2010). "The Impact of Climate on Life Satisfaction." Kiel Working Paper No. 1658, Nov 2010.

How Does Economic Theory Explain the Hubbert Peak Oil Model?

by Frederic Reynes, Marjan W. Hofkes and Samuel Jovan Okullo

- This article compares the advantages and limits of the two main methods used in the literature to model oil production: the technical Hubbert approach and the economic Hotelling approach. We argue that the technical approach can be nested in the economic approach by showing that a technical or geological constraint can be reinterpreted as a cost constraint. This provides an economic foundation for Hubbert’s peak oil model.

Reynes, F., M.W. Hofkes and S.J. Okullo (2010). "How Does Economic Theory Explain the Hubbert Peak Oil Model?" USAEE Working Paper No. 10-052, available at SSRN. Nov 2010.

Can Reserve Additions in Mature Crude Oil Provinces Attenuate Peal Oil?

by Samuel Jovan Okullo and Frederic Reynes

- Following the peak in US crude oil production 30 years ago, more and more non-OPEC producers have seen their production decline as a result of resource depletion. OPEC on the other hand has extracted a comparatively smaller proportion of its reserve base. Given that new non-OPEC discoveries are growing ever limited, we explore the role of reserve additions and OPEC in determining future crude oil supply: we formulate a model that embodies a weak and strong OPEC for various rates of reserve additions in mature crude oil provinces.

Okullo, S.J. and F. Reynes (2010). "Can Reserve Additions in Mature Crude Oil Provinces Attenuate Peal Oil?" USAEE Working Paper No. 10-053, available at SSRN, Nov 2010.

Embedding CCS Infrastructure into the European Electricity System: A Policy Coordination Problem

by Nadine Heitmann, Christine Bertram and Daiju Narita

- This paper reviews the recent literature on energy system modeling pertaining to the problem of installing CCS-related infrastructure throughout Europe and also discusses the policy issues that need to be addressed for a potential wide implementation of CCS in the next decades.

Heitmann, N., C. Bertram and D. Narita (2010). "Embedding CCS Infrastructure into the European Electricity System: A Policy Coordination Problem." Kiel Working Paper No. 1657, Nov 2010.

The Global Effects of Subglobal Climate Policies

by Christoph Böhringer, Carolyn Fischer and Knut Einar Rosendahl

- Missing from much of the debate on trade-related measures is a broader understanding of how climate policies implemented unilaterally (or subglobally) affect all countries in the global trading system. Arguably, the largest impacts are from the targeted carbon pricing itself, which generates macroeconomic effects, terms-of-trade changes, and shifts in global energy demand and prices; it also changes the relative prices of certain energy-intensive goods. This paper studies how climate policies implemented in certain major economies (the European Union and the United States) affect the global distribution of economic and environmental outcomes, and how these outcomes may be altered by complementary policies aimed at addressing carbon leakage.

Böhringer, C., C. Fischer and K.E. Rosendahl (2010). "The Global Effects of Subglobal Climate Policies." Discussion Papers 634 - Statistics Norway, Nov 2010.

Accounting for CO2 Emissions from International Shipping: Burden Sharing under Different UNFCCC Allocation Options and Regime Scenarios

by Nadine Heitmann and Setareh Khalilian

- In this paper we investigate the various options suggested by the Subsidiary Body for Scientific and Technological Advice (SBSTA) of the UNFCCC for allocating CO2 emissions from international shipping to individual countries. We discuss economic and regulatory issues related to these options and the consequences of applying them. We evaluate the various options on the basis of environmental effectiveness, possibility of legal implementation, and fairness of burden sharing. We conclude that an allocation of international shipping emissions should be conducted on the basis of the operating company.

Heitmann, N. and S. Khalilian (2010). "Accounting for CO2 Emissions from International Shipping: Burden Sharing under Different UNFCCC Allocation Options and Regime Scenarios." Kiel Working Paper No. 1655, Oct 2010.

Analysing Bioenergy and Land Use Competition in a Coupled Modelling System: The Role of Bioenergy in Renewable Energy Policy in Germany

by Ruth Delzeit, Horst Gömann, Karin Holm-Müller, Peter Kreins, Bettina Kretschmer, Julia Münch and Sonja Peterson

- In the context of energy security and climate protection, biomass is given high importance. Nevertheless, land-use conflicts resulting from the cultivation of biomass and their economy-wide effects are yet to be fully understood. To shed light on this issue we link three distinctive models; a global, multi-regional general equilibrium model (DART), a regionalised agricultural sector model for Germany (RAUMIS) and a location model for biogas plants.

Delzeit, R., H. Gömann, K. Holm-Müller, P. Kreins, B. Kretschmer, J. Münch and S. Peterson (2010). "Analysing Bioenergy and Land Use Competition in a Coupled Modelling System: The Role of Bioenergy in Renewable Energy Policy in Germany." Kiel Working Paper No. 1653, Oct 2010.

Explaining European Emission Allowance Price Dynamics: Evidence from Phase II

by Wilfried Rickels, Dennis Görlich, Gerrit Oberst

- We investigate the extent to which allowance price dynamics can be explained by market fundamentals. We empirically test for the influence of fuel prices, economic activity, and weather variations. Fuel prices allow to test for fuel switching from coal to gas, the most important short-term abatement option for most installations in the EU-ETS. The empirical results show a significant influence of gas, coal, and oil prices, of economic activity and of some weather variations. When including the relative price of coal to gas on a forward level, we found evidence of a switching effect. Yet, on a spot level the demand effect seems to dominate.

Rickels, W., D. Görlich, G. Oberst (2010). "Explaining European Emission Allowance Price Dynamics: Evidence from Phase II." Kiel Working Paper No. 1650, Oct 2010.

Implementing the EU Renewable Target Through Green Certificate Markets

by Finn Roar Aune, Hanne Marit Dalen and Cathrine Hagem

- The EU Parliament has agreed on a target of a 20 % share of renewables in the EU’s total energy consumption by 2020. To achieve the target, the Council has adopted mandatory differentiated national targets for each of the Member States. In this paper we consider the potential for cost reductions by allowing for trade in green certificates across Member States. Our numerical model indicates that EU-wide trade in green certificates may cut the EU’s total cost of fulfilling the renewable target by as much as 70%.

Aune, F.R. H.M. Dalen and C. Hagem (2010). "Implementing the EU Renewable Target Through Green Certificate Markets." Discussion Papers 630 - Statistics Norway, Sept 2010.

International Emissions Trading with Endogenous Taxes

by Odd Godal and Bjart Holtsmark

- Motivated by the climate problem, this paper examines some effects of international cap & trade when national quotas result from strategic choice. In contrast to the fairly optimistic tone of closely related literature, the tenor of our results is pessimistic. We find that though an international permit market may flourish, it will mainly redistribute income. As far as emissions reductions are concerned, the classical, rather inefficient, noncooperative outcome will prevail, regardless of the presence of cap & trade.

Godal, O. and B. Holtsmark (2010). "International Emissions Trading with Endogenous Taxes." Discussion Papers 626, - Statistics Norway, Aug 2010.

A Two-Sector Model of the European Union Emissions Trading Scheme

by Suzanne Shaw

- The subject of this paper is a model which has been developed to estimate EU-ETS constrained emissions and consequent EU ETS permit market equilibrium prices in the medium term. The model, in its current stage, is conceived for the case of a permit market composed of two EU27-aggregated sectors: electric and non-electric, and for the specific case of full banking and borrowing. The paper presents the conceptual approach of the model, its main features and quantitative relationships, together with the method of resolution under perfect foresight.

Shaw, S. (2010). "A Two-Sector Model of the European Union Emissions Trading Scheme." Available at SSRN, Jul 2010.

Should We Impose Emissions Taxes that Firms Evade?

by John K. Stranlund

- In this paper, I identify several circumstances under which regulators may conserve enforcement costs by implementing emissions taxes that firms evade. I demonstrate that a regulator can use a firm’s tax evasion to reduce monitoring effort, but only if its monitoring strategy can be made an increasing function of the firm’s emissions, if the probability of sanctioning a violation is increasing in the size of the violation, or if the firm’s manager is risk averse.

Stranlund, J.K. (2010). "Should We Impose Emissions Taxes that Firms Evade?" University of Massachusetts Amherst Department of Resource Economics Working Paper No. 2010-4, Sept 2010.

An Experimental Analysis of Compliance in Dynamic Emissions Markets

by John K. Stranlund, James J. Murphy and John M. Spraggon

- In this paper we present results from laboratory emissions markets designed to investigate enforcement and compliance when these markets allow permit banking. Banking is motivated by a decrease in the aggregate permit supply in the middle of multi-period trading sessions. Consistent with theoretical insights, our experiments suggest that high permit violation penalties have little deterrence value in dynamic emissions markets, and that the main challenge of enforcing these programs is to motivate truthful self-reports of emissions.

Stranlund, J.K., J.J. Murphy and J.M. Spraggon (2010). "An Experimental Analysis of Compliance in Dynamic Emissions Markets." University of Massachusetts Amherst Department of Resource Economics Working Paper No. 2010-3, Aug 2010.

Optimizing Voluntary Deforestation Policy in the Face of Adverse Selection and Costly Transfers

by Suzi Kerr and Arthur van Benthem

- As part of international climate change policy, voluntary opt-in programs to reduce emissions in unregulated sectors or countries have spurred considerable discussion. Since any regulator will make errors in predicting baselines, adverse selection will reduce efficiency since participants will self-select into the program. In contrast, pure subsidies lead to full participation but require large financial transfers; this is a particular challenge across countries. A global social planner facing costless transfers would choose such a subsidy to maximize efficiency. However, any actual policy needs to be individually rational for both the buying (industrialized) and selling (developing) country. We present a simple model to analyze this trade-off between adverse selection and infra-marginal transfers.

van Benthem, A. and S. Kerr (2010). "Optimizing Voluntary Deforestation Policy in the Face of Adverse Selection and Costly Transfers." Motu Working Paper No. 10-04, Aug 2010.

Willingness to Pay for Climate Policy: A Review of Estimates

by Evan Johnson and Gregory F. Nemet

- We surveyed estimates of consumer willingness to pay (WTP) for climate policy to: (1) assess the validity of this explanation, (2) compare elicitation techniques, and (3) explore factors that might explain variation in WTP estimates. We recalculated WTP estimates on an equivalent basis across 27 studies and found a range for WTP of $22-$437/household annually, with a median of $135. We also discuss outliers not included in this range.

Johnson, E. and G.F. Nemet (2010). "Willingness to Pay for Climate Policy: A Review of Estimates." La Follette School Working Paper No. 2010-011, Jun 2010.

Climate Policy as Expectation Management?

by Daiju Narita

- By using a simple model, we show some possible cases where carbon emission reduction progresses in a self-fulfilling prophecy by firms expecting others’ future actions. In such circumstances, the carbon pricing system does not have much influence on determining the final outcome of economy-wide emission reduction. This highlights the danger of overemphasis on finding the "right" carbon price in policy making and the role of climate policy as expectation management.

Narita, D. (2010). "Climate Policy as Expectation Management?" Kiel Working Paper No. 1624, May 2010.

The Assessment of Nuclear Energy Costs Using a Fuzzy Approach

by Fausto Cavallaro

- The aim of this paper is to develop an approach based on fuzzy-sets to handle the uncertainty of nuclear power costs. The underlying aim is to appraise the economic advantages of nuclear power compared with other traditional energy sources, namely coal and natural gas.

Cavallaro, F. (2010). "The Assessment of Nuclear Energy Costs Using a Fuzzy Approach." Available at SSRN, Apr 2010.

Hydro-Economic Modeling of Climate Change Impacts in Ethiopia

by Gene Jiing-Yun You and Claudia Ringler

- To identify the potential threat of climate change to the Ethiopian economy, this study analyzes three major factors that are changing under global warming: water availability under higher temperatures and changing precipitation patterns, the impact of changing precipitation patterns on flooding, and the potential impact on crop production of the carbon dioxide (CO2) fertilization effect. These issues are analyzed based on an existing multi-market-sector model for the Ethiopian economy, with a focus on agriculture.

You, G. J-Y and C. Ringler (2010). "Hydro-Economic Modeling of Climate Change Impacts in Ethiopia." IFPRI Discussion Paper 00960, Apr 2010.

Climate Change Implications for Water Resources in the Limpopo River Basin

by Tingju Zhu and Claudia Ringler

- This paper analyzes the effects of climate change on hydrology and water resources in the Limpopo River Basin of Southern Africa, using a semidistributed hydrological model and the Water Simulation Module of the International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT). The analysis focuses on the effects of climate change on hydrology and irrigation in parts of the four riparian countries within the basin: Botswana, Mozambique, South Africa, and Zimbabwe.

Zhu, T. and C. Ringler (2010). "Climate Change Implications for Water Resources in the Limpopo River Basin." IFPRI Discussion Paper 00961, Apr 2010.

The GHG Balance of Biofuels Taking into Account Land Use Change

by Mareike Lange

- The contribution of biofuels to the saving of greenhouse gas (GHG) emissions has recently been questioned because of emissions resulting from land use change (LUC) for the bioenergy feedstock production. We investigate how an expanding biofuel feedstock production impacts on land use dynamics if LUC is included into the biofuel carbon accounting framework as scheduled by the European Commission. We show that the current accounting method promotes biofuel feedstock production mainly on former cropland, thus increases the competition between food and fuel production on the currently available cropland area.

Lange, M. (2010). "The GHG Balance of Biofuels Taking into Account Land Use Change." Kiel Working Paper No.1619, Apr 2010.